Comment & Analysis

Moving away from the traditional insurance model

Assaf Tayar, managing director and WESA regional lead at BCG Platinion

An outdated pipe system with too much pressure will crack. If we look at this in the same way for insurers, Covid-19 has created huge pressure for the industry to digitally transform, causing their pipes (operating systems) to crack. Now, all insurers must change that pipework to one that meets the constant flow (pressure) of consumer expectations.

While lockdowns prompted digitised solutions to cope with call centres and underwriters’ offices shut, a year of unprecedented challenges can only lead to positive change. Change that focuses on digital innovation.

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Proving the impossible

For years, many sectors have streamlined and automated products and services. Think hospitality with Uber Eats and retail with the likes of Amazon Prime. This meant business could cope with the pressure Covid-19 created. 

However, insurers have had a much bigger task on their hands, with the industry traditionally lagging behind on digital transformation.  According to a report by The Economist Intelligence Unit, only 35% of insurers could process a transaction digitally before the pandemic.

But Covid-19 showed insurers that the majority of tasks can be executed, all while employees work from home. For instance, Lloyds of London, the world’s largest insurance hub replaced its four-story “underwriting room” with its electronic trading system, Placing Platform Ltd (“PPL“). They proved what was thought to be impossible, possible.

Digital priority 

So while the industry has started to adapt, the momentum must continue. Just like any customer, insurance customers expect the same type of digital experience from their insurer that they get from the likes of Disney+, Amazon, or Airbnb. 

Insurers must keep pace with customer expectations or lose prospective clients to those meeting today’s digital demands. In fact, insurers have acknowledged this. Platinion’s umbrella organisation, BCG, InsurTech interviews confirmed that digital transformation has become a priority for Chief Innovation Officers. 

Executives are now fully aware of the advantages technology holds for their companies, their customers, and the global community. What’s more, members of IT departments have become more involved in major decisions that are critical to the digital transformation of traditional insurance companies.  

To back this up, additional research from Information Services Group (ISG) found that 90% of insurers said digital transformation will now be accelerated in the sector, and 95% agreed that customers want more digital products and services. 

The next phase 

Clearly, the industry is heading in the direction of change. Insurers did a great job of adapting with the likes of remote working and carrying out tasks like underwriting from home, and are making digital a priority. 

Although digital transformation must be executed correctly – and to be successful in the new future – requires careful consideration. As we know, customers and b2b customers expect a seamless offering, so if insurers are to lay the ‘pipework’ to cope with the digital age, what must they do? Well, it can only be possible with a strong reliance on data, bionic capabilities and open architecture.

1) Data

Data is critical to ensure optimal decision-making. Insurers have years of historical data at their disposal to define actuarial models and risk profiles for their prospects and clients. Insurers need to be tapping into these data-sharing opportunities from ecosystems spanning across multiple industries or shared infrastructure. 

Looking further ahead, the concepts of data mesh and distributed data space should facilitate aggregation of more and more data from the same source across time and space, leading to improved benchmark comparisons and generating insights into trends. This should unlock product and process innovation.

And back to the pipe example, a reliance on data, combined with analytics helps insurers to predict a build-up of pressure, thus burst water pipe. So from an operations point of view, the answer is clear; data helps to make much more informed decisions to benefit consumers. 

2) Bionic capabilities

It might feel impossible to design and implement new technology, but a bionic approach changes this. Bionic combines the best of human expertise, data and technology to create a resilient organisation that’s able to take advantage of technology – in an ethical way – and win in the new reality. 

For instance with RPA technology, fraud can be understood by a robot which could, in turn, then call upon advanced algorithmics to assess whether a claim is fraudulent or can be compensated. Only the most complex or doubtful cases would then need to be flagged for human evaluation, which is a true bionic example where the strengths of human and machines work in harmony.

3) Architecture

There is no single organisation that can build all the necessary capabilities as well as the entire market does and that’s ok. However, an insurer does needs to be able to integrate new technology and plug-ins to adapt and evolve. Insurers today can look to the ecosystem for resilience. 

As Covid-19 proved, insurers need to be flexible and leverage the market to adapt to consumer changes, which moves much faster than any organisation. Technology changes in significant ways every six to twelve months – and adapting to those is a key strategic function of businesses. 

The importance of open architecture is to ensure that all solutions are built to guarantee long-term flexibility, adaptability and cost efficiency of any overall platform. The right architecture also helps with an agile mind-set among leadership as it’s easier to meet the fail-fast-learn approach.

The infrastructure insurers need

While insurers were able to quickly adapt to the catastrophe of Covid-19 in the short-term, it has to go beyond that. Customers’ expectations have changed and insurers must continue to innovate and evolve.

Society is much more digitally aware which means insurers can no longer be ‘traditionally behind’. With a bionic model that is built around data and with open architecture, insurers can keep up with the pace of change. Then if insurers are faced with unprecedented challenges, their operating models will not crack under pressure but instead, seamlessly cope.

Assaf Tayar is managing director and WESA regional lead at BCG Platinion

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